10. Budget
The CSI Thermal Program would be funded from $250 million to be collected from gas ratepayers, as described in AB 1470, and those monies would go to fund incentives to gas-displacing SWH. In addition, CSI Thermal would include $100.8 million in solar thermal funds collected from electric ratepayers through the general market CSI program, which would fund incentives to electric-displacing SWH.
10.1. Gas-Displacing Budget
The Staff Proposal recommends collection of the $250 million from the three gas utilities based on the percentages the utilities use to collect the natural gas Public Goods Charge from gas customers, which are as follows:
Table 5: Proposed Budget Allocation
Utility |
Budget Allocation |
Total Program Collections (in millions) |
PG&E |
39% |
$97.5 |
SDG&E |
10% |
$25 |
SoCalGas |
51% |
$127.5 |
Total |
100% |
$250 million |
PG&E disagrees that its share of the total budget should be 39%. PG&E notes that under SGIP, PG&E receives 44% of funds and its allocation under this program should be the same. Although PG&E disagrees with the allocation percentages, we agree with staff's usage of an allocator based on gas revenues since this is a program that will benefit gas customers. We will adopt the percentage allocations proposed by staff.
According to the Staff Proposal, rate collections for the gas-displacing portion of CSI Thermal would be spread evenly over eight years, beginning in January 2010 and continuing through December 31, 2017. In comments on the proposed decision, TURN requests that to avoid unnecessary overcollections, the Commission should authorize the utilities to establish memorandum accounts to track actual projects costs and then amortize these account balances in rates on an annual basis to collect the funds actually spent. We agree with TURN's proposal and will adopt it.
Therefore, we will require PG&E, SCE, SDG&E, and SoCalGas to each file an advice letter to establish a CSI Thermal memorandum account for expenditures under the gas-displacing program beginning with the effective date of this decision through December 31, 2017. On an annual basis, each utility would file in its appropriate ratemaking proceeding for collection of the prior year's balance in the memorandum account from its gas customers on an equal cents per therm basis, with total expenditures over the program duration not to exceed the amounts in Table 5. We also note that pursuant to Section 2863(b)(3), customers participating in the California Alternate Rates for Energy (CARE) or Family Electric Rate Assistance (FERA) programs shall be exempt from this surcharge. With this exception, all gas customers who currently fund the SGIP shall fund the gas-displacing portion of CSI Thermal.
The Commission has already established how the three electric utilities would collect the $100.8 million from electric ratepayers for solar thermal within the CSI. The most current revenue requirement for the CSI was adopted in D.08-12-044 and we make no changes to the CSI revenue requirement in this decision. Each utility shall separately track its expenditures for electric-displacing SWH incentives in its existing CSI memorandum account established in D.06-08-028.
Staff proposes a CSI Thermal Gas-Displacing Program Budget as follows:
Table 6: Proposed CSI Thermal Gas-Displacing Program Budget
CSI Thermal Program Elements |
CSI Thermal Program |
Budget |
Incentives 80% |
General Market Incentive Component |
$180,000,000 |
Low-Income Incentive Component (10% of incentive funds) |
$20,000,000 | |
Subtotal |
$200,000,000 | |
Market Facilitation 10% |
Marketing & Outreach, including training, consumer education, and other market facilitation activities such as engaging with permitting offices or financing providers. |
$25,000,000 |
Subtotal |
$25,000,000 | |
Program Administration 10% |
Application/incentive processing, General Administration, and System Inspection |
$15,000,000 |
Measurement and Evaluation |
$10,000,000 | |
Subtotal |
$25,000,000 | |
Total |
$250,000,000 | |
As shown in the table above, staff recommends setting aside 10% of the $200 million in incentive funds for low-income SWH incentives to comply with the Section 2866 requirement that "not less than 10% of the overall funds for installation of [SWH] systems" be provided to low-income residential housing. Environment California and ACCES contend the Staff Proposal errs in setting aside 10% of the $200 million incentive budget for low-income SWH incentives, rather than 10% of the total $250 million budget. TURN suggests that the Commission should budget $40 million for low-income SWH incentives, which is 20% of the $200 million incentive budget.
We agree with those parties who ask for an increase in the low-income SWH incentive budget to 10% of the total funds for this program. We will increase the budget for a low-income SWH incentive program to $25 million. This will require a corresponding reduction to another element of the program budget. We find it sufficient to allocate $5 million for M&E, rather than the $10 million proposed by staff.
With regard to the other budget categories, there was little dispute. CALSEIA generally agrees with the proposed budget. It supports allocating 20% of the total budget, or $50 million, for administration and market facilitation activities based on its contention that market facilitation is critical to accelerating market transformation of the SWH market. Environment California also agrees with the set-aside of funds for market facilitation. CCSE claims that because its budget is only 10% of the total funds, it will have only $187,500 for administration activities. According to CCSE, this amount will be insufficient for its administration duties, and it requests it be allowed to use 20% of its budget for administration.
We will adopt the market facilitation and administrative budget proposed by staff, along with our minor M&E reduction. We agree with CALSEIA that market facilitation and outreach activities are a critical element of the program to ensure market transformation. In response to CCSE's concern that its administrative budget is insufficient, we note that under the pilot program that it administered, it budgeted and we approved $224,000 per year for administration. We will allow CCSE the flexibility to move no more than an additional $50,000 per year from its market facilitation budget to cover additional administrative expenses, as necessary. CCSE may not exceed its total budget allocation of $4.5 million for administration, market facilitation, and M&E combined.
Therefore, as discussed above, we will adopt an adjusted natural gas-displacing program budget as follows:
Table 7: Adopted CSI Thermal Gas-Displacing Program Budget
CSI Thermal Program Elements |
CSI Thermal Program |
Budget |
Incentives 82% |
General Market Incentive Component |
$180,000,000 |
Low-Income Incentive Component (10% of total funds) |
$25,000,000 | |
Subtotal |
$205,000,000 | |
Market Facilitation 10% |
Marketing & Outreach, including training, consumer education, and other market facilitation activities such as engaging with permitting offices or financing providers. |
$25,000,000 |
Subtotal |
$25,000,000 | |
Program Administration 8% |
Application/incentive processing, General Administration, and System Inspection |
$15,000,000 |
Measurement and Evaluation |
$5,000,000 | |
Subtotal |
$20,000,000 | |
Total |
$250,000,000 | |
10.2. Electric-Displacing Budget
Staff proposes a CSI Thermal electric-displacing program budget that assumes the entire $100.8 million can be used for SWH incentives. Any costs for application and incentive processing, general administrative activities and system inspections would be funded from the CSI program administration budget, which was set in D.06-08-028 and limited to 10% of total CSI funds. An additional $17.5 million for marketing and outreach and measurement and evaluation costs would also be drawn from the general market CSI program administration budget.
Table 8: Proposed CSI Thermal Electric-Displacing Program Budget
CSI Thermal Program Elements |
CSI Thermal Program |
Budget |
Incentive Program Component |
General Market Incentive Component |
$100,800,000 |
Low-Income Incentive Component |
$0 | |
Subtotal |
$100,800,000 | |
Market Facilitation Program Component |
Marketing & Outreach, including training, consumer education, and other market facilitation activities such as engaging with permitting offices or financing providers. |
$12,500,000 |
Subtotal |
$12,500,000 | |
Program Administration |
Application/incentive processing, General Administration, and System Inspection |
Subject to the overall CSI budget, but tracked separately |
Measurement and Evaluation |
$5,000,000 | |
Subtotal |
$5,000,000 | |
Total |
$118,300,000 + CSI Admin Budget Costs | |
Staff does not recommend any funding for electric-displacing low-income SWH incentives due to the Itron Interim Evaluation finding that only 10% of households, or roughly one million customers, use electric water heating in California. We agree this is not necessary at this time given the relatively low percentage of households in California that use electric water heating, and the fact that we offer other low-income energy assistance through our energy efficiency and CSI programs.
According to TURN, the $100.8 million budget for electric-displacing SWH incentives should be reduced because of the low market share of these systems. TURN contends it is not reasonable to allocate one-third of all incentive dollars (i.e., $100.8 million of $300.8 million) to electric-displacing systems. CCSE notes that one-third of the M&E budget will be funded from the electric-displacing program, while electric-displacing SWH systems are approximately 10% of the total SWH market. Thus, CCSE suggests the Commission reduce the funding allocation for M&E from the electric-displacing program budget.
In response to TURN, we note that 10% of residential customers using electricity to heat water translates into roughly 1,000,000 households. While this is a relatively small percentage of the total number of households, it is nonetheless a large market for SWH systems. Indeed, if the $100.8 million is spent entirely on residential SWH systems and assuming an average incentive or $1,000 per system, only about 100,000 residential installations would be made, resulting in approximately 10% market penetration of those customers using electricity to heat water. The Itron analysis also indicates that electric displacement is more cost-effective than the gas displacement, due to the relatively high cost of electricity compared to gas. Thus, it is reasonable to allow up to the full $100.8 million to be allocated to electric-displacing systems.
We also note that since gas is used to produce a significant amount of the electricity used in California, electric-displacing systems also meet the goals of AB 1470 in reducing gas usage and carbon emissions. In fact, depending on the exact mix of resources used to provide electricity, electric-displacing systems may provide greater gas and carbon reductions than gas-displacing systems.
Given the greater cost effectiveness of electric-displacing systems and the potential for greater gas and carbon reduction benefits, it may be worthwhile to allocate greater funding to these systems. However, AB 1470 defines a solar water heating system as a device that has the primary purpose of reducing demand for natural gas, not electricity, and funds the program with a surcharge on natural gas customers. Moreover, SWH systems must be in buildings connected to the natural gas distribution system to be eligible for incentives under AB 1470. We note that one major group of gas customers paying into the gas program will be utility electric generation departments for the gas used to operate their power plant. Those costs are ultimately borne by electric ratepayers. Thus, on an economic, environmental and equity basis it may be reasonable to consider shifting some funding from the gas-displacing program to the electric-displacing program. We direct Energy Division, in reviewing this program, to consider whether the Commission has or should seek the flexibility to use funds collected under AB 1470 for incentives to electric-displacing SWH systems.
In addition, although the Staff Proposal assumes up to $100.8 million in funding for incentives to SWH that displaces electricity, electric-displacing SWH must compete for the $100.8 million in CSI funding with other non-PV solar thermal technologies that may participate in CSI, as allowed in D.06-12-033. We clarify that up to $100.8 million could be used for incentives to electric-displacing SWH, but the actual amount will depend on the participation in CSI by other forms of electric-displacing non-PV solar thermal.
We will, however, reduce the electric-displacing SWH budget for M&E and market facilitation because we do not expect the full $100.8 million to fund SWH. We agree with CCSE that since electric SWH systems have a small market share, we should devote less of our budget to electric-displacing marketing and M&E. We will budget $6.25 million for market facilitation and $1.25 million for M&E, which is one-fourth the amount we have budgeted for these activities in the gas-displacing portion of this program.
The Staff Proposal recognizes that marketing and M&E activities for gas-displacing and electric-displacing will be performed together and recommends the PAs should draw funds from both the natural gas- and electric-displacing budgets to fund these activities. The Staff Proposal suggests that costs be split on a ratio of 2:1, where every $2 spent by the natural gas displacing budget, will be matched with $1 from the electric-displacing budget. Because we adopt a lower budget for electric displacing market facilitation and M&E that is one-fourth the budget for gas-displacing market facilitation and M&E, we will direct that PAs fund these activities on a 4:1 ratio instead.
The adopted electric-displacing program budget is shown in the table below.
Table 9: Adopted CSI Thermal Electric-Displacing Program Budget
CSI Thermal Program Elements |
CSI Thermal Program |
Budget |
Incentive Program Component |
General Market Incentive Component |
No more than $100,800,000 |
Low-Income Incentive Component |
$0 | |
Subtotal |
$100,800,000 | |
Market Facilitation Program Component |
Marketing & Outreach, including training, consumer education, and other market facilitation activities such as engaging with permitting offices or financing providers. |
$6,250,000 |
Subtotal |
$6,250,000 | |
Program Administration |
Application/incentive processing, General Administration, and System Inspection |
Subject to the overall CSI budget, but tracked separately |
Measurement and Evaluation |
$1,250,000 | |
Subtotal |
$1,250,000 | |
Total |
$108,300,000 + CSI Admin Budget Costs | |
